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Thursday, July 22, 2010

Real Estate Scams, don't be fooled

Being in the real estate business, we should always be aware of real estate scams. I thought that this article may refresh your memory and maybe save someone you know of being scammed in a Real Estate transaction. This has always been an issue, especially in poor economic conditions. Once "honest investors" can become corrupt and begin feeding on the less educated homeowners in this bottom feeding real estate market. Let's keep these illegal companies and individuals from scamming someone you know!

Mortgage fraud: An estimated $4 billion to $6 billion in annual losses result from mortgage fraud, according to FBI reports. “An entire community can be damaged by mortgage fraud,” says Rachel Dollar, a lawyer from Santa Rosa, Calif., and editor of the Mortgage Fraud Blog. Mortgage fraud can lead to a spike in foreclosures, home values plummeting, and lenders raising their rates and fees to recover losses.
The crimes are often complex, involving several parties. Here's some of the most common ones:

1. The Foreclosure Rescue Scheme:

The Scam: “Rescuers” promise the defaulted borrower that they can prevent a foreclosure. The scammer wants to ultimately obtain ownership of the home and receive rent from the homeowner. There will also be the payment of upfront fees, which begins to solidify the relationship. There could be a new loan on behalf of the owner or by having the owner sign over the Grant Deed. Eventually, the home owner loses the home, either to foreclosure or the rescue company. What makes matters emotionally worse for the once homeowner, is the fact that rent was paid for many many months to the scammer rescue company.

Red Flags: When asked sign any Grant Deed or Quitclaim Deed, if you hear the words "do not contact your lender", or "please send mortgage payments to ______ (not the lender)"

2. Loan Documentation Fraud:

The Scam: Having a lender willing to blindly loan money and/or having a borrower willing to provide inaccurate financial information — such as about their income, assets, and liabilities — or employment status, as well as occupancy fraud.

Red Flags: There could be a faulty employer’s address, or the accumulation of assets compared to the person’s income. It could be a simple as the new house is too small to accommodate occupants.

3. Appraisal Fraud:

The Scam: It entails manipulating or overstating comparables, market values, or property characteristics in order to obtain a higher appraisal.

Red Flags: Be skeptical of appraisals. Study the list comparable sales to make sure of similarities to the property and are not outside the neighborhood. The owner is not the seller listed on the contract or the title, or a third party participating in the transaction orders the appraisal. Also, the purchase agreement may have language that ties the sales price to a higher amount, upon receipt of the appraisal.

4. Illegal Property Flipping:

The Scam: This entails purchasing properties and reselling them at inflated prices. These scams usually involve faulty appraisals and inaccurate loan documents. Many times a very high transfer tax is placed on the Flipper's Grant Deed, which is totally accepted at the County Recorder's Office. The property is then refinanced or resold immediately after purchase for an inflated value. The home is purchased at a higher price, often by straw buyers working with the “flipper,” and eventually falls into foreclosure.

Red Flags: Some key things to look for are rapid refinancing of a property; the seller recently having acquired the title or acquiring the title concurrent with the transaction; an appraisal that comes in too high; a property that was recently in foreclosure being purchased at a much lower price than its sales price; or the owner listed on the appraisal and title not matching the seller on the sales contract, according to Fannie Mae.

5. Short Sales Schemes

The Scam: Borrowers fake financial hardship and no longer make their mortgage payments. Someone that the borrower knows submits a low offer to purchase the property in a short sale agreement. The lender agrees to the short sale, unaware that it was premeditated. The property, after being purchased at the reduced price, is then often resold at the home’s actual value for profit.

Red Flags: The borrower defaults on the mortgage without any attempted negociations or discussions with the lender. A quick offer is made and sent to the lender at a low short sale price. Also, another warning is cash back being offered at closing to the delinquent borrower. This could be for repairs or other payouts, which is not disclosed to the lender.

6. The Beneficiary and Borrower gets Scammed:

The scam: It's not just about homeowners getting scammed. Innocent individual lenders can be scammed as well. Does the name Paul Boileau ring a bell? Well, he was a loan servicer back in the 80's that basically over many years was given Power of Attorney to handle the investments for my hundreds of individual beneficiaries. Over time, the loan servicer discovers it could be very lucrative to commit fraud. By misappropriating funds in handling the mortgage payment from the borrower and passing along lies to many hundreds of individual beneficiaries. Here's an interesting portion of the Bankruptcy chapter 7, later chapter 11 proceeedings in which Bouleau attempts to use the bankruptcy court to retain many illegal assets.

This is really a great read about Boileau for the property attorneys.

Here's some more Loan Servicing companies names to remember. I know I left out so many, but here's a few:

Fairbanks Capital: In 2003-2004, many borrowers making payments have to file bankruptcy just to stop the fraudulent and direct action of the loan servicer. Basically, the loan servicer created fradulent defaults and foreclosure actions. Visit and review

Litton Loan Servicing: Handled unlawful foreclosures, holding payments, charging late fees, doubling impound charges. Visit and review

Laconia Loan Services: Internet Loan Scam. Borrowers send money to Spain, via Western Union or similar wire for loan fees, appraisal, and payoff of credit cards, upon the guarantee of being approved for a new loan. Visit and review

Ocwen Loan Servicing: This one has managed to survive the complaints and lawsuits from borrowers. I am uncertain of the current status and I will not comment further. Please check out Moody's Investor Guide for Ocwen financials at:

You can report instances of suspected mortgage fraud to

Southern Pacific Title Services is here to assist with any title information. If you or someone you know needs title information, be sure to give us a call, or visit our website for more information.

It's up to us to stop the scammers and protect our industry. Forward this to a relative or friend. Have them click on the website links above so they can be educated as well.

Thanks for your support and God Bless!

Lee Stegall
Southern Pacific Title Services
4655 Cass Street
Suite 204
San Diego, CA 92109
W: 858-246-7893
M: 619-669-8543

Tuesday, December 15, 2009

Advice on buyers that nibble

Dealing with buyers who 'nibble'
How to handle those who won't stop negotiating
December 15, 2009 03:13 PM

Whether you are buying or selling a home, there are some shrewd negotiators out there who want to extract every last possible dime from your pocketbook. One of their most common strategies is "the nibble."
You completed all negotiations, the buyer has removed all the contingencies, and you're set to close in just three days. Every detail concerning the move has been handled. Much to your surprise, you receive a call from your agent telling you the buyers thought the washer, dryer and refrigerator were included in the deal.
They're refusing to close the deal unless you either leave them the appliances or give them a credit for $1,000 to replace the items. While this could be a legitimate misunderstanding, chances are that you have just experienced what is known as "the nibble." A "nibble" is a negotiation ploy where the nibbler attempts to get "just a little bit more" out of the deal.
I once had an REO (bank-owned) listing on the Wilshire Corridor in Los Angeles. The property was in great condition and had new carpets and drapes. We had priced the property to sell. We received two offers and the bank took the highest offer, which was an "all cash" offer.
The buyers were from another country, where bartering is a core cultural value. For my bank clients, the signed contract represented what they expected to receive when the transaction closed. For the buyers, the contract was just the beginning point of the negotiation.
The listing agreement was clear: The buyers were purchasing the property in "as-is" condition. The bank was exempt from the disclosure requirements, although as an agent I still had to provide the buyers with a disclosure statement. I completed my disclosure and included it as part of the offer negotiation. The buyers signed off on the offer.
In normal practice, once the buyer approved the bank's counteroffer including the disclosure items, those items were no longer subject to negotiation.
In most cases, when a buyer purchases an REO there is no physical inspection contingency. This means that the buyer must inspect the property prior to making an offer. It also means that the buyer does not have a legitimate way to back out of the transaction based on the property condition unless that condition changed between the time the property was placed under contract and the time it closed.
Although it was unusual, the bank agreed to the physical inspection contingency since the offer was all cash.
Our contract called for all appliances to be in "normal working order." The appliances all worked properly. The buyers were unhappy that the appliances were seven years old. They asked the bank to replace all of the appliances. The bank refused, but did agree to purchase a home warranty to move the deal forward. This was the first "nibble" in the deal -- getting the bank to pay for the home warranty.
A week later, I received a call from an appraiser wanting access to the property. I contacted the buyers' agent to see exactly why the buyers needed an appraisal, since the transaction was supposed to be all cash. Furthermore, the bank had requested proof of enough funds on deposit at a U.S. bank to close the transaction for all cash in the 30-day period.
It turned out, at least the agent claimed, that the buyers thought they could bring that much money into the country, but were having trouble doing so. Assuming that the property appraised at the purchase price, the buyers had sufficient funds to make a 20 percent downpayment and obtain an 80 percent new loan.
They were going to need an extra couple of weeks to close the loan, however. Nibble No. 2: Would the bank be willing to extend the closing week another two weeks? The bank agreed, although it demanded a preapproval letter from the buyers' mortgage company prior to accepting the change in terms.
The buyers asked if they could bring their decorator to the property. It was a warm day and the air conditioning was off. The buyers came back the following day and claimed that the air conditioning system "was not in proper working condition as per the contract because it took too long to cool down the property." However, I visited the property and the system kicked on immediately. The buyers demanded that the bank replace the air conditioning. As an alternative, however, they said the bank could replace the carpets with marble.
Fortunately, we received a strong back-up offer. At that point, the bank instructed me to have cancellation instructions drawn up, including retaining the buyers' $10,000 deposit for liquidated damages as per the contract. The bank gave the buyers five business days to close as per the new contract date or lose their $10,000 deposit. When the buyers learned of the other offer, they immediately came up with the money and closed.
The moral of the story: About the only way to stop the nibble is to be prepared to walk away from the transaction. The nibbler knows that it really isn't worth starting the sale process all over again for such a little amount.
Bernice Ross, CEO of, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at and find her on Twitter: @bross.
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